High Dividend Stocks

Today I return to the DOW 30 component stocks with Home Depot (HD).  Home Depot has a typical S&P 500 dividend yield and payout ratio.  It has be an exceptional dividend grower.  It is approaching speculative pricing and it has some weak aspects to it’s balance sheet.  To see how I came to those conclusions read on. Read the rest of this entry »

Today I take a break from my series of articles on the DOW 30 stocks to cover the business of racing.  I love racing.  So imagine my joy when I learned that track operator Speedway Motorsports (TRK) pays a decent dividend yield of 3.7%.  While the action on the track has been thrilling the last few years, the action in the stands has been disappointing.  High unemployment, high gasoline prices, and a Keynesian induced economic bust has hurt TRK badly.  I’ve been watching most NASCAR races on TV since 1997 and I’ve never seen the stands more empty than since the financial crisis of 2008.  This New York Times blog summed it up in late 2008.  Nothing has changed in the stands since then.

http://wheels.blogs.nytimes.com/2008/10/17/perfect-storm-brewing-for-nascar/ Read the rest of this entry »

JP Morgan Chase is part of the banking cartel.  This bank is run by Keynesian morons.  Even the Keynesian financial press is catching on: http://www.google.com/finance/company_news?q=NYSE:JPM#  The politicians are using JPM’s losses to campaign for more government intervention into the financial markets.  The problem is not JPM’s proprietary trading losses.  The problem is the moral hazard created by Federal Reserve System bailouts.  These bankers would not take so much risk if the Federal Reserve was behind them with a bailout.  I would never buy a bank stock even if it had a high dividend because you never know what assets they really own.  However, I decided to do some First Look analysis on JP Morgan Chase for those of you who will buy a bank stock. Read the rest of this entry »

Today I take a first look at heavy equipment giant Caterpillar (CAT).  This is the second stock in a series I’m writing on the Dow 30 stocks since many of them are dividend payers.  The dividend yield is puny, but the dividend growth has been tremendous.  It is speculatively priced today.  Lastly, their balance sheet is really ugly.  It’s not the ugliest I’ve seen, but it is pretty close.  To see how I came to these conclusions read on. Read the rest of this entry »

I’m going to take a look at the Dow Jones Industrial Average 30 stocks over the next few weeks that I’ve never examined.  Today I take a look at IBM.  Their dividend is unremarkable, the stock price is too high, and the balance sheet is weak.  To see how I came to that conclusion read on. Read the rest of this entry »

I’m always looking for high dividend stocks with earning power and strong balance sheets.  I consider a dividend yield above 6% to be a high dividend stock.  To see why read this: http://bit.ly/6percentDIV.  But don’t let that article distract you.  The focus of this article is going to be on the balance sheet measure known as the current ratio.

There are many measurements of strong balance sheets.  A company’s current ratio is one such measure of a strong balance sheet.  The current ratio is the company’s current assets (usually cash, equivalents, and accounts receivable) divided by its current liabilities (those are liabilities due within one year such as accounts payable and the current portion of the long term debt, etc.).

One of my favorite companies is Safe Bulkers (SB).  They are a dry bulk shipping company.  Unfortunately their current ratio has dropped in the last few quarters.  It currently stands a 0.73.  The father of value investing, Benjamin Graham, consider a current ratio of 2.0 the minimum for investment.  He wrote that back in his book Security Analysis in the 1930’s.  Safe Bulkers current ratio seems really low.  That made me wonder how all the other shipping companies compare.  Here is what I found:  (Note – The size of the bubbles represent the company’s market capitalization in millions of dollars.  For example, Knightsbridge Tankers has a market cap of $303 million.)

Here is a table with most of the largest publicly traded shipping companies used in the graphic above:

The average current ratio of the shipping industry is 1.84.  If you throw out the highest and lowest current ratios, then you get 1.56.  So the average of the industry by either measure is below what Graham considered acceptable.  That is interesting.  What was the ratio of the shipping industry in Graham’s day?  Fortunately for use he produced a gem of a table in his 1937 book Interpretation of Financial Statements which I’ve included here:  The 8 companies in shipping had an average current ratio of 3.7.

I have a sickening feeling that almost every industry nowadays will have an average current ratio below 2.0.  My hypothesis is that decades of Keynesian MBA finance grads have abandoned saving money to ensure financial resilience in a bad economy (like 2008-2009).  Keynesians hate savings because they believe that it causes consumer spending to go down and therefore the economy goes down.  If you want to learn more about this, then read Henry Hazlitt’s The Failure of the New Economics available free from www.mises.org.  He’s got a whole section on the faulty logic of Keynes’ “Paradox of Thrift”.

Subscribe for free at www.myhighdividendstocks.com/feed to discover high dividend stocks with earning power and strong balance sheets.

That’s all for now.

Be seeing you!

Arch Coal’s stock price has declined over 75% in the past 52 weeks.  Should you buy like this article recommends?  http://seekingalpha.com/article/473521-4-reasons-why-analysts-expect-arch-coal-s-stock-to-double.  The answer is no because the dividend isn’t safe and the balance sheet is weak.  Read on to see how I came to that conclusion. Read the rest of this entry »

Seeking Alpha contributor, EFSinvestment, wrote that Enerplus Corporation (ERF) is a buy at today’s price of $17.76.  His article is here: http://seekingalpha.com/article/513701-dividend-stock-ideas-2-buys-3-holds .  He pays no attention to the effects of a worldwide recession on oil and natural gas prices.  That will hurt earning further.  And he pays no attention to the balance sheet.  This is what he wrote:

Enerplus Corporation – Buy

With a dividend yield of 12.1%, Enerplus is one of the top-yielding Canadian commodity stocks. In the last year, the company paid $389 million in dividends. While it might be claimed that the payout ratio is unsustainable, I think the dividend is pretty safe. It is more than fully covered by the company’s operating cash flow. Enerplus generated an operating cash flow of $641 million in the last 12 months.

(click to enlarge)

(Source: Finviz.com)

Due to company’s exposure to natural gas-related assets, the stock has lost more than 26% in this year alone. However, it looks like a cheap deal after the recent sell-off. Enerplus is trading near its book value. The P/S and P/CF ratios stand at 2.4, and 5.3, respectively. The company has substantial assets in the Marcellus and Bakken shales. Morningstar claims that these assets could prove highly productive in the long term.

My FED+ fair model suggests a fair value range of $20 – $38. Analysts mean target price of $26.79 fits almost perfectly at the middle of my fair value range. The current price of $18 suggests that Enerplus is deeply undervalued. I think the stock is oversold, and ready for a big bounce. That is why I rate it as a buy.

Here is my first look analysis of Enerplus Corporation Read the rest of this entry »

What the Heck is Working Capital and Why Should You Care?

Jason Brizic

April 20^st, 2011

You need to know what working capital is because it is one of the indicators of balance sheet strength.

Follow Benjamin Graham’s advice on the importance of working capital.  The following passage comes from the 1937 book The Interpretation of Financial Statements Chapter XII:

            In studying what is called the “current position” of an enterprise, we never consider the current assets by themselves, but only in relation to the current liabilities.  The current position involves two important factors: (a) the excess of current assets over current liabilities – known as the Net Current Assets or the Working Capital, and (b) the ratio of current assets to current liabilities – known as the Current Ratio.

            The Working Capital is found by subtracting the current liabilities from the current assets.  Working Capital is a consideration of major importance in determining financial strength of an industrial enterprise, and it deserves attention also in the analysis of public utility and railroad securities.

            In the working capital is found the measure of the company’s ability to carry on its normal business comfortably and without financial stringency, to expand its operations without the need of new financing, and to meet emergencies and losses without disaster.  The investment in plant account (or fixed assets) is of little aid in meeting these demands.  Shortage of working capital, at its very least, results in slow payment of bills with attendant poor credit rating, in curtailment of operations and rejection of desirable business, and in a general inability to “turn around” and make progress.  Its more serious consequence is insolvency and the bankruptcy court.

            The proper amount of working capital required by a particular enterprise will depend upon both the amount and the character of its business.  The chief point of comparison is the amount of working capital per dollar of sales.  A company doing business for cash and enjoying a rapid turnover of inventory – for example, a chain grocery enterprise – needs a much lower working capital compared with sales than does the manufacturer of heavy machinery sold on long-term payments.

            The working capital is also studied in relation to fixed assets and to capitalization, especially the funded debt and preferred stock.  A good industrial bond or preferred stock is expected, in most cases, to be entirely covered in amount by the net current assets.  The working capital available for each share of common stock is an interesting figure in common stock analysis.  The growth or decline of the working capital position over a period of years is also worthy of the investor’s attention.

            In the field of railroads and public utilities, the working capital item is not scrutinized as carefully as in the case of industrials.  The nature of these service enterprises is such as to require relatively little investment in receivables or inventory (supplies).  It has been customary to provide for expansion by means of new financing rather than out of surplus cash.  A prosperous utility may at times permit its current liabilities to exceed its current assets, replenishing the working capital position a little later as part of its financing program.

            The careful investor, however, will prefer utility and railroad companies that consistently show a comfortable working capital situation.

Let’s take a look at Safe Bulkers (SB) working capital situation from the past few years (Source: Morningstar.com).  Safe Bulkers financial strength has been eroding along with the dry bulk shipping market.

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http://www.myhighdividendstocks.com/category/tip-of-the-week

The Keynesian economists that make up the Federal Reserve Board of Governors are clueless and blind.  They did not see the Panic of 2008 coming, yet they claim that they see recovery and good times ahead now.  Don’t believe them unless you belive this.

You will have ample opportunities to buy high dividend stocks with earning power and strong balance sheets cheaply in the next two years.

Be seeing you!